Subsidy: 49 Acres and a Grain Dryer

A new type of subsidy for "large farms" being tested in five trial provinces represents a new direction in China's approach to farm subsidies.

The "large farm" subsidy marks a departure from the rural entitlement subsidies introduced in 2004 to a subsidy aimed at transforming the nature of farming. This subsidy is paid to farmers who plant grain on at least 300 mu (49 acres) of land in Shandong, and 500 mu in Heilongjiang, 500 mu in Jiangxi (1000 mu for cooperatives planting rice) and 1000 mu in Liaoning Province. While these are still a relatively small farms by standards in other countries, it's far bigger than the average land holding in most Chinese villages of 4-to-6 mu. The provinces seem to be getting 100 million yuan each from the central government to fund the large farm subsidies this year, probably matched by local funds. Heilongjiang says it is spending 200 million yuan on the subsidy pilot.

The "large farm" subsidy focuses on helping farmers make investments in fixed assets--irrigation, grain-drying, and grain storage facilities and equipment. The subsidy comes in the form of an interest rate subsidy or cash award given after the investment or purchase of equipment is made. One article describing Shandong Province's program says the old subsidies have been critcized for their lack of incentives and failing to fulfill their original intent; the large farm subsidy is described as a good way to search for better subsidy methods.

A number of provinces have experimented with a different "large farm" subsidy that paid farms 10 yuan per mu of land, but this new pilot subsidy is different. Jiangxi Province says its 16-yuan-per-mu "large farm" subsidy is being replaced with the new one that subsidizes investments instead of subsidizing land.

The description of Shandong's large farm subsidy is confusing. It seems to imply that large farms get a payment of 230 yuan per mu of land and a maximum payment of 1 million yuan for farms of 4000 mu or more. A description of Shandong's program procedures is vague, but seems to say that the subsidy is for investments in irrigation, grain-drying, or grain-storage made during 2011-12. Descriptions of the program from Heilongjiang, Jiangxi, and Liaoning make it clear that the subsidy offsets the costs of investments. In Anyang, Liaoning Province, for example, the subsidy covers 30 percent of the cost of on-farm investments.

A Ministry of Agriculture official speaking at a Tsinghua University conference on rural affairs last month said that the large farm subsidy is intended to have a demonstration effect and encourage local officials to channel new increases in subsidies and financial programs toward supporting large grain farms and "family farms." The subsidy is paired with other campaigns to facilitate the consolidation of land into larger-scale operations.

A "land swap" initiative attacks the fragmentation of land-holdings that holds back land consolidation. Each family generally receives multiple plots of land in different locations. The idea of land swaps is to let villagers exchange plots of land to consolidate their land-holding to form larger parcels. The villager can then farm the land on a larger scale himself or sub-contract it to someone else. The MOA officials reports that land swaps totaled 16.1 million mu (2.6 million acres) as of last June, accounting for 6 percent of rural land transfers.

One of the big problems facing commercial-scale farmers is raising cash for investments or to finance working capital. The large farmer subsidy program incorporates agricultural loan guarantee companies to help with credit access.